Cash Dividend Commitment, Investors' Quoted Price, And IPO Price Adjustment

From the point of disclosed information in the initial public offering(IPO)prospectus,this paper has collected the information of cash dividend commitment of a sample of Nov.9,2011 to Dec.31,2012 IPOs and studied the effect of cash dividend commitment on the investors' quoted price and IPO price adjustment.We find that the issuers'cash dividend commitment message is really captured by investors,and reflected in the quoted price.The higher ratio of the commitment of cash dividend is,the price quoted by the investors(the mediation of quoted price)is larger.And the price adjustment from the mediation of quoted price in the pre-seeking process to the offer price is negatively associated with the commitment of cash dividend ratio.Further study grouped by adjustment direction shows that when the IPO price is adjusted upward with respect to the quoted price,it shows that the relationship between cash dividend commitment and IPO adjustment is not statistically significant,which means issuers and underwriters have considered that the investors had captured the cash dividend commitment information and quoted high prices while the ratio of the cash dividend commitment is high,so they will make a small upward adjustment in order to make sure the success of the IPO(avoid the problem of IPO "three highs" and IPO break).On the other hand,when the IPO price is adjusted downward with respect to the quoted price,the relationship between cash dividend commitment and IPO adjustment is statistically significant,which means issuers and underwriters will make a large downward adjustment given that investors may have made over reaction to the cash dividend commitment leading to the quoted price higher than the intrinsic value.In the robustness test,considering that there are differences in cash flow and growth of firms in different boards and industries,we adjust the commitment of cash dividend ratio using the board and industry mediation of quoted price and the conclusion still holds.We trace the implementation of cash dividend commitment and find that most companies(88%)are able to pay cash dividends annually and achieve the continuity of the cash dividend,but the stability is poor.Comparing the real and committed cash dividend ratio,only 19.77%of the company has fulfilled its promise from an average annual level,and 19.77%from a single year analysis.Whether it is from the overall period or the specific year,the companies' performance of cash dividend commitment is poor.Further analysis of the findings finds that listing company's cash dividends show a characteristic of a higher ratio in the first year after IPO,but the subsequent annual is low,the reason is to be further explored.This paper has firstly studied the effect of cash dividend commitment on the IPO price adjustment from the mediation of quoted price in the pre-seeking process in the primary market.Our studies show that the rules made by the China's Securities Regulatory Commission(CSRC)that the "Initial Public Offerings"(IPO)companies should commit to their shareholders about future dividend policy in prospectus in 2011 make positive effects on the IPO pricing process.On the one hand,the IPO-bound companies' cash dividend commitment message is really captured by investors,and reflected in the quoted price,and the cash dividend commitment system can improve the efficiency of the capital market's information transmission and asset pricing to a certain extent.On the other hand,since the market oriented reform of the book-building system was officially launched in June 2009,the problems of IPO "three highs" and IPO break closely related to the issue price have attracted the attention of regulators and the market investors,our findings show that issuers and underwriters will consider investors' reaction to the commitment of cash dividends rationally,adjust the issue price prudently and avoid overpricing for the sake of the success of the IPO,that is,the correlation of adjustment and commitment ratio of cash dividend is negative when the IPO price is upward adjusted,and the adjustment is increased with the commitment ratio of cash dividend while the IPO price is downward adjusted.The follow-up analysis of the performance of the cash dividend commitment is indicated that listing corporation should attach great importance to the implementation of the cash dividend commitment and protect the investors' interests effectively.The conclusions of this paper provide empirical evidence and useful policy reference for the regulators to improve the listing company's return on investors and strengthen the protection of investors' rights.